Over the last few years most people have probably become familiar with the term “short sale”. But, not everyone knows exactly what is a short sale. A short sale is basically when you sell your home for less then what is owed on it. It isn’t so simple in real life though, because unless you have cash to make up the difference between what you owe and the sales price at closing, the deal can’t go through. The only way to make a short sale work is by having the lenders approval to except less for the payoff of the loan then what is currently owed. Because of the third party approval required to sell your home for a discounted price short sales are known to take a while to close. Six months is common, and I know of a few that have taken up to two years. In the end though, if you are facing foreclosure, a short sale is better then having your home foreclosed on. Your credit score won’t take as big of a hit with a short sale as with a foreclosure. Also to help try to streamline the short sale process, and to help relive the large amounts of foreclosures, the government has a program called “Home Affordable Foreclosure Alternatives” or HAFA which if you can qualify for usually results in a little bit of a quicker and smoother transaction.
Do I Qualify for a Short Sale?
Now that you know what a short sale is, the question is do you qualify for one? Just because you want to sell your home and the current market price is less then what you owe, doesn’t mean you can do a short sale to sell it. Here are the basic requirements of doing a short sale:
Must be a valid hardship
The property owner must have a valid hardship that is the reason that they are behind on their payments and can not afford to keep the house anymore. Valid hardships are typically job loss, business failure, medical issues and bills, death or divorce, or having to move because of work.
You must be behind on your loan
The hardship you are in must be creating a situation where you can not make the payments and you are in a loan default situation.
There must be time
If you wait too late in the foreclosure process and the foreclosure sale is looming in the near future, it may be too late to start the process. It is important if you find yourself in a foreclosure situation, that you act quickly to try to remedy the situation
You must not have the assets to fix the situation yourself
Basically, if you want to do a short sale because your home is worth $50,000 less then your mortgage, but you have $100,000 in stocks and bonds the lender will make you remedy the situation yourself. The hardship must include not having the money or assets to be able to pay off the remaining debt.
You must be willing to cooperate on the sale of your house
The short sale process is long and complicated. You must be willing to work with your realtor and the lender to get the home sold and situation resolved. This usually means writing letters to the lender when asked by your realtor, and keeping the house up and reasonably clean for showings.
Everybody’s situation is a little different and there may be a few more requirements depending on that situation, but those are the basic requirements that lenders will be looking at. Ultimately the decision on whether or not someone qualifies is up to the lender. If you are unsure if you qualify, or you want to know more about the short sale process, I would be happy to arrange an appointment to meet with you privately to discuss your situation and give you my thoughts. I am certified as a Short Sales and Foreclosure Resource by the National Association of Realtors and can help you with the process.
Home Affordable Foreclosure Alternatives (HAFA)
Because of the large amounts of foreclosures caused by the housing bubble and economic downturn, the US Government has created several programs to help people who are in default of their loans. The “Home Affordable Foreclosure Alternatives” program was designed to help with short sales. The benefits to using the HAFA program if you qualify for it are the following:
- Standardized time frames and documents to expedite the short sale process
- The short sale can be pre-approved
- financial incentives to the homeowner and the lender
- No out of pocket expenses for the homeowner
- homeowner is released from liability of the remaining debt
To be eligible for the HAFA program you need all the basic requirements to do a short sale plus the following must apply to you:
- Loan was originated before January 1st, 2009
- unpaid balance of loan is less then $729,750
- Loan is deliquent
- Must be a hardship
- Must be your principal residence, vacant, or be rented out.
- The short sale agreement must be started by December 31, 2013
The program has been extended several times and is currently set to expire at the end of 2013 on 12/31/2013. It is unknown at this time if the program will be extended again. If you are looking at the possibility of doing a short sale on your home it is important to get the process started if you think you may qualify for the HAFA program. To find out more about the HAFA program you can get more information off of the programs website at: http://www.makinghomeaffordable.gov.